Saturday, November 12, 2011

Beat the Bank: Five Community-Driven Alternatives

Bank Transfer Day is this Saturday, and even if you're not preparing to close your bank account right away, you may well be rethinking your financial relationships.

What if your money, instead of sitting shackled in a fee-laden bank account, could be out making the world a better place? If your meager savings could make a difference, would you share them?

Alternative economy activist Mira Luna recommends investing in tangible things to benefit yourself and the people you love.

"Money...is a representation for energy and where it flows or is stored. A sustainable and healthy community is the best investment...You will have a more joyful, healthy and abundant place to live. Rather than bottling up energy and hoarding it in bank accounts, community currencies facilitate the flow of energy and wealth."

There are many alternative ways to put your money to work improving your sphere. Here are a few options worth looking into.

1. Credit Unions

If you want to hang onto (and maybe increase) your funds without handing them over to a banker, you can't do much better than a member-owned, not-for-profit credit union. Credit unions represent local communities, geographic regions and even cultural groups. They often have lower fees and higher interest rates than banks. Every member can vote on how the union's money is invested. And it's all guaranteed by the National Credit Union Share Insurance Fund, which is backed by the U.S. Government and has a higher insurance fund capital ratio than the FDIC.

CDFIs can be banks, credit unions, loan funds, venture capital funds, or other financial institutions. Their uniting trait is that they offer credit and financial services to underserved communities. One leading CDFI is the Center for Community Self-Help in North Carolina, which provides home and business loans to rural, low-wealth and minority borrowers. Another, Chicago's ShoreBank, is African-American owned and focuses on developing and serving urban communities.

By placing your money with a CDFI, you increase their ability to complete their mission. Within the United States, your savings are guaranteed by the Community Development Financial Institutions Fund, a function of the U.S. Treasury.

The most direct way to invest in people is to simply loan them your money. Peer-to-peer (P2P) lending is more formalized than simply handing $5,000 to a stranger, but still manages to cut out bank involvement.

P2P brokers like LendingClub and Prosper screen loan applicants' credit backgrounds, giving you more assurance that you'll be paid back. At the same time, these for-profit companies still offer better-than-bank rates -- often around 10% for lenders and as low as 6% for borrowers.

4. Microfinance

A cross between P2P and CDFIs, microfinance lets lenders pool their money to fund small and community-driven projects, often sending money to entrepreneurs in improverished areas. Want to help a Guatemalan woman build up her apron business to give her children better opportunities? Even if you don't have much money to share, you can contribute to her business fund -- and hundreds of other funds like hers.

Microfinance sites like Kiva and Microplace do not take a profit, and don't pay interest to lenders. They both have multiple safeguards in place to help make sure your money comes back to you.

5. Alternative currencies

In this uncertain financial climate, it's not uncommon to hear of people investing in gold or foreign currencies. In the past few years, another alternative has surfaced: international digital currencies, including Ven and Bitcoin. Don't be too quick to write off digital coin as something only useful to SecondLifers: Earlier this year, TechCrunch called it "the end of currency as we know it."

Bitcoin is traded via a decentralized peer-to-peer network, and is often used to pay for services. It can be transferred into traditional currency, and like any currency, its value fluctuates with the market. Ven, a newcomer to the scene, is the first digital currency to be tracked by global financial markets. Thanks to a partnership with Thomson Reuters, you can trade and purchase Ven as you would any other currency. The only difference: You can't stuff it in your money belt.

It may only be a matter of time before money belts, big banks and spiraling consumer debt are things of the past. How fast they fade away is up to us. Whatever you choose to do with your money, let it be an informed choice that takes into account the potential effects on your life and your community at large.

About Me

"Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled... away, fall of his own weight and break in pieces." -Etienne de La Boétie *Feel free to copy any posted material. Attributions to writers are recommended, but the commons prevail here.